Here is the scenario: Our credit is good, we are debt free, have no children, and make good livings. Won’t include any retirement assumptions, as this is something we’d be looking at separately from retirement. My soon to be wife and I currently make about $250,000/yr and live in AB. We are looking to purchase a home for, give or take, $750,000. We plan to put 20% down, or $150,000, leaving us with a mortgage of, give or take, $600,000. I will use the following conservative assumptions: mortgage amortized over 25 years, mortgage interest of 5%, HELOC of $100,000 (2/3 of the equity) at 5%, a flat mortgage payment of $2000 biweekly, and an expected return of 4% on investment.

If I want to do the calculations, do I put $100,000 as my starting HELOC and also $100,000 as the non-registered asset? I am assuming I do. Further, if adding a periodic investment, am I to assume that investment is put onto the principal of the mortgage, then borrowed against?

Been a reader and subscriber for a while, enjoying it, and this is my first post.

Try enabling macros.

Ed

Any help there would be appreciated.

In order to provide the functionality I required, I employed macros. You can purchase Fraser Smiths calculator for $30 if I remember correctly.

Any ideas what I’m doing wrong?

* Disregard, I played around with it some more :) *

Without having all of your figures that sounds about right. You can almost think of it like investing your prepayment into something that provides a return equivalent to your mortgage rate. How much would that increase your investments over the period?

If you had a longer period to pay it off or a higher interest rate the effects would be more significant.

I have a query in regards to the Annual Prepayment box. Using my parameters, leaving the box as $0 results in a Total cash flow of $386,000. Populating $5,000 in the AP box results in a Total cash flow of $383,000. Since the mortgage will be retired in 8 – 9 years the $40k in annual payments have only saved me $3,000 in payments on the mortgage. Is this correct?

I see where the effect is noticable in the Investment portfolio… I guess I just thought that dropping $5k each year on the mortgage would provide a lot more “bang”.

Again, I am glad you find it useful. It certainly helped me a great deal but it was more a labour of love than anything.

I’m sorry but increasing the readvanceable portion based on a growing home value was a feature created for a client in the commercial version. There is no way to activate it.

You could manually adjust it by running a scenario, say, for five years. Copying the end numbers down and then using them to seed the new scenario. It wouldn’t be easy hence why I was contracted to make it automatic.

Cheers

I find this spreadsheet very useful, I happened upon it by chance after watching a video by David Ingram (below) and then doing a google search for Smith Maneuver in excel.
http://david-ingram.com/article.php/CanadaMortgageTaxDeduction

I actually really like the re-advancing additional equity for SM if home value increases, I see some SM mortgages allow for LOC to be increased if home value rises without any legal fees. Is there a way I can activate this feature in your spreadsheet?

Cheers

In the commercial version the calculations can be more complex and not ideal when showing a client. You want to put all the numbers in and then hit calculate to see the impact to go from one scenario to another.

Secondly the house value is not enabled here. It was put in there for the use of readvancing additional equity during the SM every X years.

I truly believe that this meets the needs of 95% of people. The other 5% would be relevant only if you used this in a financial advisor capacity.

Please note that the marginal tax rates change and you are allowed to put in your figures as appropriate.

The only thing that doesn’t auto-update is “House Value Growth Rate”… that does not seem to have any functional component in this spreadsheet … clearly I’m missing something.

Cannon_Fodder is there a tweaked commercial version that I can purchase somewhere?

Cheers

Cannon – excellent job with the spreadsheet, you are an excel guru. I always like running models, it’s amazing what they can reveal…this one you created is no exception.

Someone might have already asked this and it might already have been answered but the “calculate” button does not appear to have any function – am i missing something? I’m running excel 2007.

Also, what is the point of the ”house value growth rate”? It does not seem to effect any of the calculations?

Cheers

That’s what I was missing.
I unchecked Step 3, added 25K to Non-registered investments and 25K to HELOC starting value and everything makes sense now.
Thanks again!
The SM Spreadsheet is great!

William

Sometimes when you create something that is comprehensive, you also make it complex. I admit I haven’t spent a lot of time adding instructions to it so it won’t be as intuitive to anyone else but me.

If you don’t want the investments to be applied to the principal then you must make sure you do not have Step 3 checked. This option, when checked, assumes you already had some investments (I believe it was GIC’s in Fraser Smith’s book) that you would sell, take the proceeds and reduce the principal, and then borrow the principal back to invest in something else – likely equities.

Make sure you look over all of the check boxes, radio buttons, etc. to ensure they apply in your situation.

As I don’t have an investment portfolio, the initial amount I will have to invest is the 25K lump sum from the HELOC (from your example).

If I use the 25K as Non-registered Assets, it gets applied to the Principal Amount and then shows up on the Investments. This doesn’t work for me because I haven’t actually reduce the principal.
On the other hand, if I use the 25K as HELOC Starting Value, it doesn’t show up on the Investments.

Am I missing something? Can you please tell me how I input the 25K lump sum from the HELOC as initial investment

Thanks again!

William

You are welcome.

It has been so long since I looked at the original but, yes, it is different. They are independent but connected. So, you will need to add whatever your initial investments are to the mix.

In most cases, your HELOC starting balance will equal your investment starting balance but not all. This was as a result of a discussion I had with Ed Rempel and it makes sense. Many of his clients come to him already with an investment portfolio so you would add that to this calculator (e.g. you come in with $50k of investments, and you take out a lump sum of $25k from your HELOC and buy another $25k of investments. Your non-registered assets would start with $75k instead of $25k.)

In fact, you can use this spreadsheet simply as a mortgage amortization schedule… or you can forego anything to do with mortgage and use it for projecting investment growth. It doesn’t have to be about the SM so I tried to make it more flexible.

I hope this helps…

Thanks a lot for making the latest version of the SM Spreadsheet available to all. It’s really a great tool!

I guess something is not working the way it should. When I enter the “HELOC Starting Value” it’s not added to the “Investments” in the “Calculations” sheet.

In a previous version of the calculator it use to work like I’m describing, and it makes sense because I will have around 31% equity when I start the SM which means I will have 11% credit available in the HELOC ready to invest. I will be investing 10% from the HELOC which will make it the “HELOC Starting Value”.

Did the way of inputting this situation change on this latest version of the SM Spreadsheet?

Thanks again for the great calculator!
William